Ortega Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows:

Direct materials	$	150,000
Direct labor		240,000
Variable manufacturing overhead		90,000
Fixed manufacturing overhead		120,000
Total	$	600,000

Assume Ortega Industries could avoid $40,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Ortega purchases the component from the supplier instead of manufacturing it, the effect on income would be a:

Multiple Choice

• $60,000 increase.

• $10,000 increase.

• $100,000 decrease.

• $140,000 increase.